The FCA has fined five of the world's biggest banks. Photo: Flickr/Images Money
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Use today's record banking fine to put payday lenders out of business

Jumping the shark.

Today’s record £1.1bn fine imposed by the Financial Conduct Authority on five of the world’s biggest banks should not just disappear into the FCA’s coffers. George Osborne was quick out of the blocks this morning at 6am with a statement welcoming the record FCA fines on our banks over the foreign exchange rigging scandal. Unscrupulous bankers had tried to rig ‘the fix’, as it’s known, to pocket extra cash. Not good for London’s reputation, not least given Libor has already been tarnished.

Of the £1.5bn in fines, Osborne said: “I will ensure that these fines are used for the wider public good”. Given that some of those will be paid by the taxpayer owned RBS, there’s an element of us fining ourselves and then redistributing the cash elsewhere. The fine, imposed for the systematic rigging of the £3.5tn a day foreign exchange markets, should instead go to tackling another problem the FCA is grappling with: the high cost short-term credit market.  For earlier this week, the FCA also announced the new payday lending cap, with loan rates to be capped at 0.8 per cent per day of the amount borrowed. However, not only are there legitimate concerns that the rate remains too high, the move does nothing to spur the growth of alternative affordable providers people desperately need.  Given worries that the cap could lead to a significant shrinkage in the payday loan market with people resorting to illegal lenders, building an alternative network of providers is even more urgent.

We therefore believe that today’s £1.1bn should be used to capitalise and expand a network of such providers. Earlier this year, IPPR’s report, Jumping the shark set out a strategy for doing exactly that. We argued that regulation can reduce the damage done by providers of high cost consumer credit, but it is more effective at preventing harm than promoting good.  Alongside a tougher regulatory system, the UK also needs new forms of local, democratic finance that serve the needs of low- and middle-income households in the short term credit market, that otherwise risk being excluded.

To develop this network, we are calling for a new national institution – an Affordable Credit Trust - to be established with the remit of mobilising and capitalising a diverse range of local not-for -profit lenders. Affordable credit providers could draw down capital from the Trust and access technological infrastructure necessary to keep costs low, in exchange for offering affordable loans and operating in a democratic fashion, with borrowers becoming members of the institution. They could range from credit unions, housing associations to social enterprise providers and more, with the Trust encouraging innovation in how to service affordable, easy to use loans.  Moreover, providers should partner with institutions like local Post Offices or churches to ensure they operate at the heart of their community. 

To keep the system sustainable, lenders would be able to use as a last resort a repayment backstop mechanism similar to that employed with the DWP’s Budgeting Loan system, which consistently achieved over a 90 per cent repayment rate without placing the debtor in undue difficult.  We estimate that this in place, and with the right support, loans could be offered for as little as £3 for every £100 borrowed per month, compared to nearly £30 for the average payday loan.  In a time when household incomes continue to be squeezed, that difference can make all the difference.

However, we also know from past experience that the affordable credit market won’t grow on good wishes alone; it needs financial and technical support to get off the ground and compete with the payday lenders.  This is how it has grown in places like America, where one in three are members of a credit union.  If today’s fine by the FCA was used to capitalise an Affordable Credit Trust it could have the means to really turn the tide against high cost lenders, potentially offering up to 5 million affordable, manageable loans a year once the Trust and local provider networks are fully established, based on our previous research.

An Affordable Credit Trust capitalising affordable, democratic forms of finance captures the spirit of the times: it is about shifting capital and power away from the consumer credit industry and towards people and communities, giving them the means to build affordable alternatives to high cost credit.  It means shifting away from a reliance on cash transfers from the central state and towards rooting democratic forms of capital that allow people to be more assertive in standing up to markets where they dominate.  So on a day when the banks have been shown – yet again – to have little regard for the rules the rest of us have to live by, their fine should be used to help ensure those that need access to affordable credit are no longer alone. The £1.1bn fine should be used to help us jump the shark.

Mathew Lawrence is Research Fellow at IPPR. He tweets @DantonsHead

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Donald Trump vs Barack Obama: How the inauguration speeches compared

We compared the two presidents on trade, foreign affairs and climate change – so you (really, really) don't have to.

After watching Donald Trump's inaugural address, what better way to get rid of the last few dregs of hope than by comparing what he said with Barack Obama's address from 2009? 

Both thanked the previous President, with Trump calling the Obamas "magnificent", and pledged to reform Washington, but the comparison ended there. 

Here is what each of them said: 

On American jobs

Obama:

The state of our economy calls for action, bold and swift.  And we will act, not only to create new jobs, but to lay a new foundation for growth.  We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.  We'll restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost.  We will harness the sun and the winds and the soil to fuel our cars and run our factories.  And we will transform our schools and colleges and universities to meet the demands of a new age.

Trump:

For many decades we've enriched foreign industry at the expense of American industry, subsidized the armies of other countries while allowing for the very sad depletion of our military.

One by one, the factories shuttered and left our shores with not even a thought about the millions and millions of American workers that were left behind.

Obama had a plan for growth. Trump just blames the rest of the world...

On global warming

Obama:

With old friends and former foes, we'll work tirelessly to lessen the nuclear threat, and roll back the specter of a warming planet.

Trump:

On the Middle East:

Obama:

To the Muslim world, we seek a new way forward, based on mutual interest and mutual respect. To those leaders around the globe who seek to sow conflict, or blame their society's ills on the West, know that your people will judge you on what you can build, not what you destroy. 

Trump:

We will re-enforce old alliances and form new ones and unite the civilized world against radical Islamic terrorism, which we will eradicate completely from the face of the earth.

On “greatness”

Obama:

In reaffirming the greatness of our nation we understand that greatness is never a given. It must be earned.

Trump:

America will start winning again, winning like never before.

 

On trade

Obama:

This is the journey we continue today.  We remain the most prosperous, powerful nation on Earth.  Our workers are no less productive than when this crisis began.  Our minds are no less inventive, our goods and services no less needed than they were last week, or last month, or last year.  Our capacity remains undiminished.  

Trump:

We must protect our borders from the ravages of other countries making our product, stealing our companies and destroying our jobs.

Protection will lead to great prosperity and strength. I will fight for you with every breath in my body, and I will never ever let you down.

Stephanie Boland is digital assistant at the New Statesman. She tweets at @stephanieboland